Deal Nears for El Paso Exploration Unit

El Paso is near a deal to sell its oil and gas exploration business to a private equity consortium led by Apollo Global Management, people briefed on the matter said on Thursday, in what would be one of the biggest leveraged buyouts announced in the past 12 months.

A deal between El Paso and Apollo and Riverstone Partners, an energy-focused private equity firm, may be signed as soon as Friday, these people said. They cautioned that talks were continuing and could still fall apart.

If a deal is reached, it would be a welcome development for a mergers industry that is looking for signs of renewed activity. As of last week, the volume of announced deals in the Americas for the year to date was down 52 percent from the previous year, according to data from Thomson Reuters.

A deal would also be one of the biggest private equity transactions in the year to date, rivaling Kohlberg Kravis Roberts‘s $7.2 billion takeover of the Samson Investment Company.

The potential deal with the Apollo-led group arises from Kinder Morgan‘s proposed $21.1 billion takeover of El Paso, in one of the biggest energy deals in recent memory. Kinder Morgan is seeking to create one of North America’s biggest operators of pipes to transport oil and gas, controlling 67,000 miles of pipes that snake across the continent.

But El Paso’s exploration and production businesses have been seen as less important to the company for some time. El Paso announced last May that it would spin off those units, which account for 34 percent of its revenue.

When the Kinder Morgan deal was announced in October, both companies said that they would seek to sell off those units to help pay down debt incurred through the merger.

Though several potential bidders emerged for the El Paso units during the months-long sales process, the group led by Apollo and Riverstone had long been seen as a top contender. Among the attractions of the consortium’s proposed bid was that El Paso could sell the exploration and production divisions in one transaction.